Goldman Sachs Leans On ‘Core Strengths’ to Crush Q1 Earnings

They say you are a reflection of the company you keep. That’s no less true for Goldman Sachs, which has rekindled its relationship with the rich. 

After a U-turn away from a nascent venture into consumer banking and redoubling its efforts on banking for wealthy clients, the Wall Street juggernaut announced stellar results in its first-quarter earnings report on Monday.

Wealth Makes Health

CEO David Solomon told investors the bank has decided to “play to our core strengths.” While that may feel like a rosy way to hand-wave at some costly departures from consumer banking — Goldman completed its sale of consumer-lending unit Greensky for reportedly just a third of what it paid to acquire it less than two years ago — the results speak for themselves. In the first three months of the year, Goldman scored a 16% jump in revenue and $4.1 billion in net income, a 28% rise year-over-year and nearly a full billion dollars more than the consensus Wall Street expectation. It was enough for Oppenheimer analyst Chris Kotowski, in a note to clients, to dub the results “a near-perfect print.”

Underlying the success was its trading unit, which generated roughly half the company’s revenue in the quarter. And while analysts expected a performance dip for both equities and fixed-asset trading, both units saw revenues increase by 10%, lifted by strong performances in credit, mortgage, and currencies trading.

Meanwhile, Goldman’s investment banking unit posted its best quarter in two years, aided by some broader economic tailwinds and trends:

• Total global deal value for mergers and acquisitions surged 35% in the first quarter, compared to a dismal 2023, according to Dealogic. Meanwhile, the number of deals completed worth at least $10 billion more than doubled, The Financial Times reported.
• Those trends propelled Goldman’s investment unit to $2.1 billion in revenue, a 32% leap from a year ago, and recent strong public market debuts by Astera Labs and Reddit offer plenty of optimism for more momentum.

“Where we stand today it’s clear that we’re in the early stages of reopening of the capital markets,” Solomon said.

Piqued My Interest Rate: Goldman and its big bank brethren still have to contend with higher-for-longer interest rates. But, so far, the Fed’s stubbornness has been a mixed bag. While higher rates have allowed banks to charge more for loans, passing the costs to depositors, higher-for-longer could force banks to get competitive and pay up for high-value deposits. Elevated rates are also likely to eat into fee income from debt issuance. Last week, JPMorgan, Wells Fargo, and Citibank each posted better-than-expected revenue and net income results but also warned that higher-for-longer rates will soften core lending income.